Beneficiaries in the dark: what can you do to obtain the information you need?
This edition of our series of blogs on the new Standards and Regulations looks at the key changes to the Solicitors’ Accounts Rules.
The new rules are significantly shorter as the SRA has aimed to simplify the rules, make them more practical and less prescriptive, and to therefore increase compliance while reducing compliance costs.
What you will find is a consolidated set of 13 short and practical rules instead of 52 rules which were arduous and confusing. The new rules are captured in four categories:
The new rules remove prescriptive timing requirements and unnecessary restrictions which arguably impact legal practice, but overall maintain appropriate consumer protections by setting compliance standards. They also redefine client money.
One of the practical changes is updating the old strict and short deadlines on solicitors to ensure client money is paid into a client account without delay, to the new obligation which is to ensure client money is paid into a client account promptly. This means that, while the obligation to ensure client money is only held in the client account still applies, the timing for depositing client money into the client account has been somewhat relaxed. This will lessen the burden on solicitors and in particular sole practitioners who may not have office staff to assist with deposits and need to travel to a bank branch to deposit client money.
The new rules have for the first time provided for an exemption to the absolute requirement to have a client account. They simplify the obligations for solicitors or firms who do not hold client money.
Once the new rules commence, this exemption will provide an option for firms to hold limited types of client money outside of a client account, where this is the only type of money held and where the client has been informed in advance. For example, money held for the solicitor’s or firm’s fees or disbursements for which the solicitor or firm is liable (for example Counsel’s fees) will not need to be held in a client account. However, if the firm holds other monies (for example stamp duty land tax), these must be kept in a client account in the usual way.
The benefits of being able to use this exemption include the simplification of processes: monies can be paid directly into a business account, and certain features of the Accounts Rules will not apply, for example the requirement to obtain an accountant’s annual report, or to pay interest to a client. However, even under the exemption, firms will still need to comply with the relevant systems and controls requirements applicable to their business accounts, for example obtaining bank statements every five weeks and keeping a central record of all bills. The firm will also still need to have a COFA, who will oversee whether it ever becomes necessary for that firm to have a client account.
Firms will also be permitted to use a Third Party Managed Account (TPMA) but will have to ensure the third party managed account provider is FCA regulated, that the money in the account is beneficially owned by the third party and not the firm, and that the account can provide access to regular statements. This provides additional flexibility through an alternative to running a client account. Although the decision to use a TPMA must be made in accordance with the SRA’s requirements, the monies held in a TPMA will not be subject to the requirements of the SRA’s Accounts Rules, as the monies are held by a third party, and are not received by the solicitor or firm.
These are just the highlights of the changes to the Solicitors’ Accounts Rules. Solicitors must ensure that they adhere to the Rules and that any changes made to their accounting practices are compliant. If you believe that the new client account exemption may apply to you, give this careful consideration, and seek advice if you have any doubts. You must also keep this under review, as a client account may become required if the nature of your business changes to any extent.
Sophie Bolzonello is a Associate (Australian Qualified) in the Regulatory department and specialises in advising regulated professionals on compliance, in investigations and in respect of enforcement action. She also advises regulators on policy, governance, prosecutions and litigation.
For further information on the issues raised in this blog post, please contact a member of our Regulatory team.
Associate (Foreign Qualified Lawyer)
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